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December 21, 2023

Liquidation Process Of Joint Stock Companies

A. INTRODUCTION

A certain process must be carried out in the termination processes of joint stock companies. Joint stock companies are terminated upon the realization of one of the reasons for termination specified in the Turkish Commercial Code No. 6102 (“TCC“) or in their articles of association. It is a legal and natural consequence of the termination of joint stock companies that they enter the liquidation process. The liquidation process ends with the cancellation of the trade name from the registry, but during the liquidation phase, important processes such as the monetization of the company’s assets, collection of receivables and payment of debts, and distribution of the remaining net assets to the shareholders in accordance with the liquidation share provisions must be carried out.

B. LIQUIDATION PROCESS 

As mentioned before, the liquidation process is entered into as a result of the termination of the company. A joint stock company terminates automatically and enters the liquidation process as a result of the realization of one of the following situations:

  • Upon expiry of the term specified in the articles of association and failure to continue the activity (Art. 529/1/a TCC), 
  • Realization or impossibility of realization of the subject matter of the business (Art. 529/1/b of the TCC), 
  • Upon the realization of any termination reason specified in the articles of association (TCC Art. 529/1/c), 
  • If, according to the last annual balance sheet, it is understood that two-thirds of the total of the share capital and legal reserves are uncovered due to losses, the general assembly, which is called for an immediate meeting, may decide to be satisfied with one-third of the share capital or not to replenish the share capital or upon the occurrence of other circumstances specified in the law (Art. 376/2 of the TCC),

On the other hand, a joint stock company enters the liquidation process by being terminated with the realisation of one of the following ways of termination:

  • By the decision of the general assembly (TCC Art. 529/1/d), 
  • Through a dissolution action at its establishment (TCC Art. 353/1), 
  • Due to lack of organ (Art. 530/1 TCC), 
  • With the termination lawsuit to be filed by the ministry due to transactions contrary to public order or collusive transactions (Art. 210/3 of the TCC), 
  • Termination for just cause (Art. 531 TCC)

When a joint stock company enters into liquidation, the fate of the company organs and the legal personality of the company is also important. During the liquidation process, the company organs exercise their powers limited to the liquidation and the company retains its legal personality until the end of the liquidation process. In general, the liquidators will be responsible for the execution of the liquidation process. The liquidators may be determined by the articles of association or by a resolution of the general assembly; if not, the liquidation is carried out by the board of directors.

An important provision regarding the qualifications of the liquidators is stipulated under Article 536 of the TCC. Accordingly, at least one of the liquidators authorized to represent the company must be a Turkish citizen and reside in Turkey. The liquidators appointed pursuant to Article 540 of the TCC shall, as soon as they assume their duties, examine the situation of the company at the beginning of the liquidation; if necessary, they shall consult experts to appraise the company’s assets and prepare an inventory and balance sheet showing the company’s assets and financial status, and submit them to the general assembly for approval. Upon approval of this inventory and balance sheet by the liquidators by the general assembly, the liquidators shall seize all assets, documents and books of account listed in this inventory.

C. CONSEQUENCES OF ENTERING INTO LIQUIDATION 

A joint stock company in liquidation retains its legal personality until the liquidation is finalized and uses its trade name with the phrase “in liquidation” added. Although the organs of the joint stock company continue to maintain their existence during the liquidation process, there will be some limitations on their powers due to the nature of the liquidation process. In this context, the company organs shall only perform their duties limited to the purpose of liquidation, which are not within the scope of the duties of the liquidators.

D. NOTICE OF CALL TO CREDITORS 

An important stage of the liquidation process is the process of calling and paying the company’s creditors. Pursuant to Article 541 of the TCC, the persons whose creditors are recognized from the books of the company or other documents and whose places of residence are known shall be notified by registered letter, and other creditors shall be notified of the dissolution of the company by three announcements to be made in the Turkish Trade Registry Gazette and on the company’s website, as well as three announcements to be made at one-week intervals, as stipulated in the articles of association, and shall be called upon to notify the liquidators of their receivables. If those who are known to be creditors do not notify, the amount of their receivables shall be deposited in a bank to be determined by the Ministry of Trade. Unless the debts of the company, which are not yet due or about which there is a dispute, are adequately secured or the distribution of the company’s assets among the shareholders is conditional on the payment of these debts, the amount of money to cover these debts shall be deposited with the notary public. In this context, it is important to determine the existing and/or potential creditors and their amounts of a company entering the liquidation process.

E. DISTRIBUTION OF ASSETS AND PRESERVATION OF BOOKS AT THE END OF LIQUIDATION 

Pursuant to Article 543 of the TCC, the debts of a company in liquidation must first be paid and the share prices must be returned. Subsequently, if there are any remaining assets, they shall be distributed among the shareholders in proportion to their paid capital and privilege rights, unless otherwise agreed in the articles of association. If there is a provision in the articles of association regarding privileges in the liquidation share, the liquidation share shall be distributed in accordance with this provision. Following the end of the liquidation, the books of the company must be kept for 10 years.

F. END OF LIQUIDATION GENERAL ASSEMBLY MEETING 

In the event that a joint stock company is decided to be terminated by a general assembly meeting and enters into liquidation, pursuant to Article 543 of the TCC, the liquidation of the company must be terminated by holding a general assembly meeting with the end of liquidation agenda at least 3 months after the date of the third call announcement to the creditors, and the records in the trade registry and other official institutions must be closed by deciding to abandon the records.

G. CONCLUSION

Liquidation is the result of the termination of a company. In a company in liquidation, the liquidators to be appointed will generally be responsible for the management of the liquidation process. During the liquidation process, the legal personality of a joint stock company continues, but its organs continue to exercise their duties and powers limited to the purpose of liquidation. During the liquidation process, the creditors of the company are called at certain intervals and the liquidation ends with the return of the share prices and the distribution of the remaining assets to the shareholders in proportion to their capital ratios. After the liquidation, the books of the company must be kept for 10 years. 

Authors

Demet Akçaalan

Demet Özkahraman

Senior Lawyer

Kağan Karaduman

Kağan Karaduman

Lawyer